African Gold, the mining company with gold prospects in Zimbabwe, has recorded a drop in pre-tax profit from £374,905 to £254,759 in the year ended March 31st, 1997. Although the gold smelted at its Inez mine increased from 4,222 ounces to 4,847 ounces, sales fell from £1.1 million to £878,223. The decline is attributed to a fall in the price of gold.
Disruptions from construction and delays in underground development led to gold production falling below planned levels. Management changes and development plans put in place, will ensure that Inez production will rise to the expected monthly rate of 650 ounces, according to the chairman, Dr John Teeling.
The Inez surface plant was significantly upgraded at a cost of £500,000. Since March, it has been operating at or close to the rated capacity of 200 tons per day.
Despite the setbacks, Inez "remains very profitable". The mine produces gold at less than $200 an ounce.
The Beehive Mine, the other mine in Zimbabwe, was developed in 1996 and commenced production this month. The start-up and final cost is estimated at £1.5 million, compared with an estimated £1 million. The cost overrun is attributed to delays, inflation and some design changes.
The fall in the price of gold is costing African Gold more than $50,000 a month in lost profits, said Dr Teeling. Nevertheless, because it is a low cost mine, it remains very profitably, he reminded shareholders in his annual review with the results.
The group's debt repayments have been slowed down because of the lower gold price, delays in new mine commissioning, and the cost overruns. Dr Teeling said total indebtedness is less than £1.5 million and the group plans to change the short-term indebtedness into a two or three year term loan. With two mines producing, the group will be generating "substantial cash flow".
